3DO Co. May Be Bought By Sega

Michelle Quinn, Chronicle Staff Writer

Published
4:00 am PDT, Wednesday, August 23, 1995

Sega Enterprises Ltd. is talking to The 3DO Co. of Redwood City about buying all or part of the struggling video game maker in a deal that would dramatically alter the landscape of the electronic game industry, sources said.

No price has been mentioned, but Trip Hawkins, the founder and chief executive of 3DO, reportedly has been offered a deal for all or a portion of the company. The company's current market value is $250 million.

Also, Sega is talking to Charles (Skip) Paul, executive vice president of MCA Inc., a 3DO board member, to head Sega USA, the company's coin-operated game and theme park division. MCA has a 300,000 share investment in 3DO.

The scenario drawn by several industry sources points to Sega's disappointment with the performance and sales of its newest machine, the Saturn. The company also is wary of competitor Nintendo Co. Ltd.'s Ultra 64. Its newest machine, expected out sometime next year, uses more sophisticated technology and could hurt Sega Saturn sales.

Tokyo-based Sega would not comment on the issue and added that it has not lowered its estimates for Saturn sales this year. The company says it already has sold 100,000 units in the United States. Analysts dispute the figure saying it is inflated by 20,000.

Also, Sega is nervous about being unable to spend as much money on marketing the Saturn as Sony Corp. and Nintendo, both more financially robust companies with new game machines.

However, Sony recently has dropped several television advertisements for its new PlayStation game machine, due in stores in September. Sony is in the throws of company-wide cutbacks caused mostly by its $2.2 billion write-off from its purchase of Columbia Pictures, a Sony source said.

Sega apparently wants out of the hardware business, which it sees as unprofitable, sources added. Instead, Sega plans to align with Panasonic, a division of Matsushita Electric Industrial Co., which owns 13.5 percent of 3DO and is currently one of its hardware manufacturers. Sega longs to do what it does well -- make great video games.

3DO officials would not comment specifically about Sega's intentions, but denied any knowledge of pending deals.

Paul reportedly was playing golf with Nakayama four days ago, another source said.

All these meetings raise the question: What happens to Trip Hawkins, when Matsushita -- his major manufacturer and key investor -- teams up with Sega run by Paul, and Tom Kalinske, the current head of Sega of America in Redwood City?

"In my opinion, whatever is being discussed, it would be highly unlikely for Trip not to be a part of it or to be moved out," said Steven Eskenazi, an analyst at Alex. Brown & Sons Inc.

If this all sounds like a complicated video game full of fits and starts, you've got the picture of the cutthroat multibillion- dollar industry.

Known to have plenty of money and enough ego to outlast competitors, Hawkins is toying with several options and actually may be in a position of strength.

He has battled the video game industry since he started 3DO in 1991. He may now decide to carve up his company, sell a portion or license its latest technology, dubbed the M2, to Sega of America, Philips Electronics in Europe and Matsushita in Japan.